This is the bizarre state of higher education: universities are running healthy budget surpluses, and yet for four years pay has been falling. Not for everyone – vice-chancellor incomes have soared – but the University and College Union estimates that staff pay has dropped by between 13% and 15%.

Why? The big picture is clear: the government is shifting to a more market-based education system. Students are now fee-paying consumers rather than citizens, and universities are competitive enterprises out for market share. And as the government threatens continued cuts to public funding for higher education, universities are encouraged to build up budget surpluses by driving up fees and poaching the richest overseas students. And, of course, by suppressing pay. Indeed, as with Thatcherite reforms to the public sector in the 1980s, the use of competitive mechanisms to cap pay is likely to be deliberate.

One potential way of keeping a lid on pay is to transfer a lot of teaching work to graduate students on "training" contracts. The pressure on pay is limited by the high turnover of graduate staff and their precarious situation.

Now, a burgeoning campaign at the he School of Oriental and African Studies (Soas) in London illustrates what this portends for the future. The campaign is led by graduate teachers who are essential to the functioning of universities, taking on a huge share of the teaching work, marking and so on. Soas graduate teachers are termed "fractionals" due to the nature of their contracts. As part-time workers they are assigned a range of tasks to complete within a number of hours that is a fraction of the total worked by full-time staff, and are paid proportionately.

In practice, most graduate teachers will tell you that they perform many more hours of work than are covered by their contract. And survey research at Soas found that fractionals work on average more than twice the number of hours they are paid for, it being impossible to complete the tasks within the set number of hours. They calculated that their real hourly wage was £8.50, less than the London living wage of £8.80.

The teachers responded to this by forming a campaign group, Fractionals For Fair Play (FFFP). Beginning with a couple of dozen members in January, it expanded to a 110-member group by March, and they elected three unions reps to support their goals. Full-time staff in all the major departments in the largest faculty, Law & Social Sciences, have issued public statements supporting FFFP.

The first formal negotiations took place at the end of March when management was surprised to be presented with a pledge signed by 100 fractional staff who wrote that they were prepared to take "further action" in support of the campaign goals. In line with survey evidence, they requested a pay increase to cover the actual hours worked.

The teachers say that management went out of their way to appear amenable. They pled "scarcity", insisting that any increased hourly pay had to be costed by either transferring more work to full-time staff or cutting courses.

The teachers began to suspect that management were simply playing for time, hoping to string them along until their only leverage – their ability to refuse to carry out unpaid work during the marking period – had passed. They also think the threats of transferring teaching to full-time staff or cutting courses are empty, intended to drive a wedge between graduate teachers and others. These suspicions have been compounded by the fact that no further dates for negotiations have been set. The campaign is currently considering whether staff can continue working unpaid hours before management addresses the issues in negotiations with the recognised union.

This has been interpreted as a threat of unofficial "wildcat" industrial action. Yet, the institution's problems go deeper and wider than that. The fractionals, fully supported by full-time staff, have also formed links with the Justice for Cleaners campaign, and the Democratise Soas campaign, and have planned a joint protest on 25 April. Student activists have submitted a petition supporting the fractionals and striking lecturers, signed by many of those graduating this year.

This alliance is logical. The cleaners are, like them, essential to the functioning of the institution, yet marginalised in an increasingly stratified workforce. The democracy campaigners, like them, view the hoarding of bureaucratic authority by university managements as a danger to education. And students, left with soaring debts and working precarious jobs, increasingly experience the institutions as authoritarian work farms. It is telling that similar alliances have emerged in other situations, such as Sussex or Senate House, where students and the lowest ranking staff have found common cause.

The neoliberal restructuring of higher education is propelling this situation, but it is also giving rise to new forces in opposition.